Bankruptcy Court.....

[fingpilot]

Accompanied a friend there this morning. Sat thru a standing room only stream of refugees from 'Change is Good-isms'.

In California. Couples (many of them) had upside down mortgages. Upside down in Escalades, BMW's, Quads, Boats. Many had already surrendered additional cars, but no foreclosure proceedings allowed. If so, another meeting was required.

If BK was approved, does that mean they get to keep the house and cars/quads/boats? How do they gain title if lienholders cannot collect? Are they done paying for them?

I suspect there are some re-affirmations going on, but wow. All of these were chapter 7's.

Anyone know?

[Looking_for_911]

I know that in Alabama bankruptcy filers don't get to keep everything without reaffirming debts. The cars, boats and other toys are usually repossessed long before they get to bankruptcy court. That's why it's so easy to buy those things on credit, even bad credit, 'cause they can be taken back by the creditor.
I know of one case where a representative from Sears showed up to court to demand the television they sold on credit to a Chapter 7 filer. The filer reaffirmed the debt. Our electric company, Alabama Power, will also show up to take back air conditioners and other appliances they sell on credit as will other creditors, ie: Discover card (part of Sears, or was) It's usually the "second tier" finance companies that really go after the stuff.
The instance I mentioned above was about 8 or 9 years ago, I imagine they're much more viligant in going after their stuff now since the economy has tanked.
Since the sweeping overhaul in bankruptcy laws took place I'd bet it's tougher now.
I'll have to ask my finace' for clarifications.

[Hugh R]

No experience here, but I've heard that if you refi a house and take the cash and buy an Escalade or whatever, the bank can't touch it. I think a lot of people in CA did just that.

[fingpilot]

I sat and watched 20 cases come and go in front of this trustee. Not a single creditor showed up. Average time start to finish was 5 minutes. Couple of them went longer due to expected inheiratance, or lawsuits pending.

I left there with the feeling that these people got to keep one car each, their houses and quads, boats, etc up to some amount of dollars. Presumably their debts were 'discharged'.

No wonder there was such a line out the door.

[McLovin]

Originally Posted by Hugh R

No experience here, but I've heard that if you refi a house and take the cash and buy an Escalade or whatever, the bank can't touch it. I think a lot of people in CA did just that.

That's true. When you refi a house, the only collateral the bank has is the house. It does not have any security interest in whatever objects you buy with the refi money.

That's one of the reasons why so many banks are so deeply screwed. When the value of the house goes down 40%, they end up being unsecured in a big amount. If they are a second lender, they usually end up being totally unsecured and lose everything.

[fintstone]

I am not sure I understand. If even if you have no other debts than an upside down house...my understanding is that default in a recourse state (like Nevada), the lender can come after your other assets (other houses, cars, bank accounts, etc)...is that not correct?

[HardDrive]

Originally Posted by fintstone

I am not sure I understand. If even if you have no other debts than an upside down house...my understanding is that default in a recourse state (like Nevada), the lender can come after your other assets (other houses, cars, bank accounts, etc)...is that not correct?

That was the 'old' America where people worried about silly things like accountability and responsibility.

[john70t]

Over half of bankrupcies are due to medical costs. Another good portion are from foreclosures due to no-doc rates changing(1 every 13 seconds now).
Meanwhile the bailed-out banks and insurance companies are paying their people well-with taxpayer dollars.

This should be called "Great Treasury Robbery".

[fingpilot]

Originally Posted by fintstone

I am not sure I understand. If even if you have no other debts than an upside down house...my understanding is that default in a recourse state (like Nevada), the lender can come after your other assets (other houses, cars, bank accounts, etc)...is that not correct?

Have looked into this a little. Turns out Nevada is still 'old school'. One house, one car, 401K's, like $15K in cash/assets.

California is VERY different. Everybody involved/named gets to keep a car. Primary residence you can keep. Other assets up to some amount like $80K. All debt is 'discharged'. Still cannot figure out how the title could be transferred without paying off the loan.

[jyl]

Realistically, aren't most bankrupt families losing the primary residence nowadays? The mortgage is not discharged. I've read that 80-85% of bankrupts lose the house, whether immediately or within one year. Makes sense. Too many are upside down on houses now, to expect many re-affirmations.

No secured debt is discharged. So if the bankrupt owned a car with a note, he either re-affirms and keeps paying the note or he loses the car. Repossession, you know.

As for liquid assets, I think most people filing BK don't have a whole lot of liquid assets left anyway. I'm not talking wealthy BKs, I mean ordinary Joe BKs.

And as for other assets, I know it is easy for some to get all outraged over a bankrupt getting to keep his ATV or TV. But the truth is that stuff has very little value. Go sell a 5 year old TV on Craigslist, that's how much value it has - peanuts.

Read this article http://www.washingtonpost.com/wp-dyn/content/article/2009/08/13/AR2009081303399.html

If they are filing Chap 7, that probably means they've already given up on the house:

Bankruptcy experts say the noticeable increase in Chapter 7 filings in the past year is an indicator of how grim people's situations have become, because Chapter 7 forces consumers to sell off their assets and can leave an even longer blemish on credit records. The number of Chapter 7 filings for the year ending June 30 totaled 907,603, up 47 percent from the previous year. In that time, Chapter 13 filings rose 12 percent to 344,421.

Henry Sommer, past president of the National Association of Consumer Bankruptcy Attorneys, said people had traditionally chosen to file for Chapter 13 to stave off foreclosure. But doing so does not decrease their monthly mortgage payments. Now that so many homeowners face higher interest rates and monthly payments on their adjustable-rate mortgages, they are giving up on their homes, he said. Instead, they are opting for Chapter 7 to take care of other forms of debt. "If your mortgage payment is an amount you can't afford going forward, then a Chapter 13 is not going to help you," Sommer said.

[looneybin]

what are the differences between chapters 7 & 13
I thought chapter 7 discharged your debt, but chapter 13 reorganizes it & you still have to pay it off

[tabs]

The time for Americans to be living off the "credit card" has ended. Now a good portion of Americans are going to be feeling the bite of poverty. Of making do with less...alot less. The DREAM IS OVER folks...there is NO GOING BACK.

[Porsche-O-Phile]

I have a real problem when "living within one's means" is equated with "poverty". That's a very, very biased point of view.

[fingpilot]

John, a very curious thing was going on in there. None of these homes were foreclosed on. The trustee (judge) asked if they were in foreclosure procedings. If the answer was no, he usually asked if they were both working. If yes, end of line of questioning. Perhaps the cars and boats and quads had been paid for by a equity line, and as such were not repossesable, but I got the distinct impression that the Chap 7 'protected' the house. I had to assume that meant some form of reaffirmation was going on. But when I looked at the Chap 7 'rules', that was not necessarily true. The judge specifically mentioned the assessor's report and the loan value, and said each time they were waaay underwater. I suspect the lenders walk away thinking good money after bad. Every block in town has at least two or three foreclosure/short sale signs.

If the answer to the Q about foreclosure procedings was yes, the judge moved on, but the summary was that he was going to contact the mortgage-holder personally and then issue a ruling.

A couple of 'not-so-funny' ones. A couple both responded yes that there were lawsuits pending. He had been rear-ended on the freeway. The other guys' insurance company was up to $15K on their offer to him. His attorney was holding out for $50K. The judge said that their combined 'allowance' was a total of $70K, and he should be mindful of that total when he considers accepting/holding out for a settlement. His wife (looked like she was from the 'people of WalMart thread') had fallen in WalMart, and injured both of her knees. Two surgeries pending, WalMart was offering the cost of the surgeries, but nothing more. She was holding out for more. Her 'slip and fall' attorney said she possibly had a net of $20K after the surgery cost (more if you count his fees). Needless to say, the judge continued their case.

I sat there wondering about all of the goings on. Got me to thinking about the secured debtors. Not a single one showed up to appear or discuss options. Seemed normal to the judge.

[craigster59]

Are there still tax liabilities (income) for the difference owed on the home loans or is this dismissed along with the bankruptcy?

[fingpilot]

Like I said, wish there was a BK attorney in here. Kinda gets you thinking , huh? I think taxes are never 'discharged', but hmmmm.

[jyl]

I guess we'd need a BK lawyer to decode for us. Possibly the form papers filed by the PK petitioner already deal w/ the house if they own one, so the judge didn't bother to question them about it? I'm sure the mortgage is not being discharged in the BK, that would be too "good" to be true. No, "bad". No, "good". I mean, I am an honorable man, but the temptation . . .

Originally Posted by fingpilot

John, a very curious thing was going on in there. None of these homes were foreclosed on. The trustee (judge) asked if they were in foreclosure procedings. If the answer was no, he usually asked if they were both working. If yes, end of line of questioning. Perhaps the cars and boats and quads had been paid for by a equity line, and as such were not repossesable, but I got the distinct impression that the Chap 7 'protected' the house. I had to assume that meant some form of reaffirmation was going on. But when I looked at the Chap 7 'rules', that was not necessarily true. The judge specifically mentioned the assessor's report and the loan value, and said each time they were waaay underwater. I suspect the lenders walk away thinking good money after bad. Every block in town has at least two or three foreclosure/short sale signs.

If the answer to the Q about foreclosure procedings was yes, the judge moved on, but the summary was that he was going to contact the mortgage-holder personally and then issue a ruling.

A couple of 'not-so-funny' ones. A couple both responded yes that there were lawsuits pending. He had been rear-ended on the freeway. The other guys' insurance company was up to $15K on their offer to him. His attorney was holding out for $50K. The judge said that their combined 'allowance' was a total of $70K, and he should be mindful of that total when he considers accepting/holding out for a settlement. His wife (looked like she was from the 'people of WalMart thread') had fallen in WalMart, and injured both of her knees. Two surgeries pending, WalMart was offering the cost of the surgeries, but nothing more. She was holding out for more. Her 'slip and fall' attorney said she possibly had a net of $20K after the surgery cost (more if you count his fees). Needless to say, the judge continued their case.

I sat there wondering about all of the goings on. Got me to thinking about the secured debtors. Not a single one showed up to appear or discuss options. Seemed normal to the judge.

[icemann427]

Even though bankruptcies are protected and adjudicated under federal statutes, guidelines, and courts, each state has their own laws under which their residents must abide, which to a degree, are somewhat similar.

In Arizona, a Chapter 7 filing allows the debtor to have an unlimited amount of debt forgiven without repercussion, and is used primarily when the debtor has few, if any, assets to protect. To qualify, the debtor must have a monthly income, that more or less, equals its monthly expenses, and must itemize all assets, with the ability to keep certain ones (home, clothing, jewelry, cars, pensions, cash, etc.) dependent upon strict exemption guidelines set by the court that limit the values and/or equity of most items/assets prior to the trustee assigning them for the benefit of the creditors (cars have a $5,000 equity exemption; homes have a $150,000 equity exemption). There are no exemptions for items such as boats, ATC's, etc., which the court may take if it so chooses). If a Chptr 7 debtor makes quite a bit more than its monthly expenses, it will be forced to file a Chtr 13 to at least partially payoff its creditors.

Most debtors file a Chptr 13 filing to protect and keep their residences from foreclosure. However, their unsecured debt can not exceed approximately $336,000 with total debt exceeding a little over a million dollars. If those levels are exceeded, the debtor must then file a Chptr 11. The Chptr. 13 filing allows the debtor to protect and keep certain assets (its residence, cars, boats, etc.) by restructuring its debt and arrearages on those assets, so that the creditors who hold secured positions become current and/or whole by the end of the plan's 60 month term. Again, the debtor must qualify based upon income/expenses/assets in a manner somewhat consistent with a Chptr 7 filing. If the debtor makes a monthly income in excess of its monthly expenses, that difference will be paid to the creditors over the plan's 60 month term.

There are couple of interesting things about Chptr 13 filings. The first is that if you happen to have a junior lien/loan/mortgage on your residence that is now totally unsecure based upon your residence's reduction in value during these great economic times, that junior lien/loan/mortgage can be fully eliminated under the plan. Somewhat the same for a car. If you have had a loan on your car for a term of at least 30 months, the court can remove the difference between the loan's outstanding balance and the value of the car, lowering the amount you owe and lowering your monthly payment.

I find that many elderly debtors file because of medical bills, and find it quite disheartening that they find themselves in this situation at this point in their lives. Almost all of them have had perfect credit all of their lives and most feel completely ashamed that they have to file. Most others find themselves in this situation because of the current state of the economy. I would say that about 10% of the filers are taking advantage of the system, and I quite frankly need to take a shower after working their cases. But all in all, the filers are good people who are in trouble and need some room to breathe.

My 2 cents...

Geoff

[icemann427]

I forgot...

Income taxes are dischargeable if older than three years. Business taxes are not (FUTA, etc.). Realty/property taxes go with the real estate.

[icemann427]

Some states are single action...Meaning they can only go against the house (foreclose) not the borrower. In dual action states, the lender can foreclose on the property and sue the borrower for the deficiency. In a bankruptcy, the loan deficiency is included in the filing so that the lender may not sue the debtor.